Arbitration. Vacatur and Confirmation of Award. Time Limits. Equitable Tolling. Fraud. Eleventh Circuit affirms district court's application of equitable tolling to extend the three-month deadline to move to vacate an arbitration award and finds that district court did not abuse its discretion in determining that the award was procured by fraud.

NuVasive, Inc. v. Absolute Medical, LLC, No. 22-10214 (11th Cir. June 21, 2023) [click for opinion]

In 2013, NuVasive, Inc. ("NuVasive"), a medical product manufacturer, entered into an exclusive distribution agreement with Absolute Medical, LLC ("Absolute Medical"), a company owned by Greg Soufleris ("Soufleris"). Through a network of independent-contractor sales representatives, Absolute Medical marketed and sold NuVasive's products throughout a defined geographic territory in Florida.

In 2017, NuVasive and Absolute Medical agreed to extend their relationship for a term of five years. Like the earlier agreement, the extension appointed Absolute Medical and its sales representatives as the exclusive distributor of NuVasive's products. The extension also contained non‑competition and non‑solicitation provisions applicable to Absolute Medical, as well as Absolute Medical's sales representatives, who were obligated to execute compliance agreements.

Less than a year after the extension, Soufleris informed NuVasive of his "resignation" from the agreement because "[his] time [had] come to move on." Three days later, Soufleris formed a new company, Absolute Medical Systems, LLC ("AMS"), which began selling products for one of NuVasive's competitors. The sales representatives followed suit, resigning from Absolute Medical and, according to NuVasive, working for AMS, soliciting business from and servicing the same customers they had previously serviced for NuVasive.

NuVasive sued, proceeding primarily under a theory of breach of contract, but alleging other common law and statutory claims as well. NuVasive named Absolute Medical, Soufleris, AMS, and two of Absolute Medical's sales representatives, Dave Hawley ("Hawley") and Ryan Miller, as defendants.

The district court compelled arbitration of the breach of contract claim against Absolute Medical, and stayed the remaining claims pending the outcome of the arbitration. On March 4, 2021, the arbitration panel issued an award. Although the panel concluded that Absolute Medical breached the agreement, it ultimately denied NuVasive's breach claim because NuVasive had failed to prove loss causation connecting Absolute Medical's conduct with NuVasive's claimed lost‑profit damages.

The parties then returned to the district court for resolution of the remaining claims. The district court allowed limited discovery. Dissatisfied with certain of the defendants' discovery responses, NuVasive moved to compel. The district court ordered defendants to produce the documents no later than August 26, 2021; however, AMS and Soufleris did not comply until November 4, 2021. When they finally did, the production revealed that, during Hawley's testimony before the arbitration panel, Soufleris was sending him text messages concerning the subject matter of his testimony.

On November 15, NuVasive moved for leave to file a motion to vacate the final award based on the misconduct reflected in the texts, arguing that the final award was "procured" through "corruption, fraud or undue means" and, therefore, should be vacated under § 10 of the Federal Arbitration Act (the "FAA"), 9 U.S.C. § 10(a)(1). Recognizing that the FAA requires any party seeking to vacate an arbitration award under § 10 to file its motion within three months of the panel's award, NuVasive asked the district court to equitably toll the statutory filing deadline. Absolute Medical opposed, arguing that applying equitable tolling to the FAA would contravene the Eleventh Circuit's "strict" adherence to the FAA's provisions, and submitted an affidavit from Hawley in which he claimed he was not aware of Soufleris's texts during his testimony.

The district court agreed with NuVasive, tolling the deadline and vacating the award. The Eleventh Circuit then affirmed on all grounds. On the question of whether equitable tolling could apply to the FAA—a question of first impression in the Circuit—the Eleventh Circuit found the Ninth Circuit's 2016 decision in Move, Inc. v. Citigroup Global Markets, to be "thorough and persuasive" and held that "the availability of equitable tolling does not contravene the FAA's text, structure, or purpose." It then rejected the argument that the three-month window was a "jurisdictional precondition to judicial review" of the award, finding no evidence in the FAA that the deadline was clearly intended by Congress to serve as a jurisdictional prerequisite.

The Eleventh Circuit also held that the district court did not err in finding that the "extraordinary remedy" of equitable tolling—which requires "extraordinary circumstances that are both beyond [the movant's] control and unavoidable even with diligence"—was appropriate. NuVasive's motion came as the result of "shocking conduct" by Soufleris and Hawley. Notwithstanding Hawley's subsequent denial, a comparison of the timing of the communications and Hawley's testimony confirmed that Hawley was conforming his testimony to Soufleris's guidance. As to diligence, Defendants appeared to have been intentionally attempting to run out the clock on NuVasive's time to file a motion to vacate by failing to produce the documents in compliance with the district court's order, and NuVasive acted swiftly once the misconduct was revealed. The Eleventh Circuit rejected Defendants' argument that NuVasive should have looked for fraud during the three-month window, noting that such an argument would place the onus on the movant to investigate a fraud "when there was no reason to suspect fraud."

On the issue of vacatur, the Eleventh Circuit also found the district court did not abuse its discretion. First, the fraud had been established by clear and convincing evidence. Indeed, in several instances, Hawley appeared to change his answer after Soufleris directed him to not implicate Absolute Medical. Second, the fraud was not discoverable during the arbitration, particularly given that Hawley was providing his testimony via video feed. And third, the fraud "materially related" to an issue in the arbitration. On this final prong, the Eleventh Circuit reaffirmed that the materiality element "does not require the movant to establish that the result of the proceedings would have been different had the fraud not occurred"; rather, a movant must show simply that the fraud was "materially related to an issue in the arbitration."

Finally, the Eleventh Circuit confirmed the discretion afforded to district courts in determining whether to direct rehearing by the arbitrators under 9 U.S.C. § 10(b), and rejected Defendants' contention that the district court abused its discretion in not doing so. The district court was well within its discretion in retaining control over the entire case after vacating the final award.

Benjamin Cody Davis of the Miami office contributed to this summary.